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In a conference Sunday night, J.P. Morgan's CFO, Michael Cavanagh called the deal, "A
good economic transaction for J.P. Morgan shareholders," and the
rock-bottom price built in a "cushion" to protect J.P. Morgan's
shareholders. He also noted that the deal contains no material adverse
change clause allowing J.P. Morgan to walk away.
"This is a deal we all want to close," he said, adding that about 200 J.P. Morgan employees worked on the deal over the last three days. He noted as well that J.P. Morgan has "customary protections," against other prospective buyers coming in, but said the commercial bank saw this as a "very, very, very low probability." He did not elaborate. J.P. Morgan's comfort with the deal, given Bear's mortgage-related exposure, was aided by the Fed agreeing to fund about $30 billion of Bear's less liquid assets. That Fed guarantee will reduce J.P. Morgan's net exposure to Bear's mortgage assets to about $13 billion from $33 billion. The bank also expects to take on about $9 billion of leveraged lending commitments on Bear's books. Cavanagh also noted that J.P. Morgan would set aside about $6 billion to account for expected litigation expense, deleveraging the balance sheet, severance payments and accounting and back-office integration, suggesting that the reserve fund made up some of the difference between the price-per-share paid in the deal and Bear's reported book value. The jewel in the deal appears to be Bear's prime brokerage business, which could provide J.P. Morgan with about $1 billion in revenue once the business is integrated over the next 12 to 18 months. However, Cavanagh and investment banking co-heads Steven Black and Bill Winters also said they were keen on Bear's equity business and energy businesses. J.P. Morgan will also acquire Bear Stearn's Manhattan headquarters, which some reports estimated to be worth between $1 billion and $2 billion. -- Vipal MongaSee full story: J.P. Morgan to buy Bear Stearns See earlier story: Sale talk surrounds Bear Stearns See earlier story: A 'Bear' sentiment wrinkle for LBOs See PDF press release from JPMorgan Chase & Co. and Bear Stearns See investor presentation from March 16, 2008 Categories Deal Video
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